Foreclosure can be foiled

Homeowners who fall behind on mortgage payments don't need to lose their houses.

Facing foreclosure on her three-bedroom condo in Westminster, Kimberly Latji avoided phone calls from her lender and watched as letters soliciting offers of help poured into her mailbox.

Latji, a nurse and single mother, is among a growing number of Southern California homeowners who can't pay their mortgages.

About half are facing tough issues such as a divorce or loss of a job or overtime, said Richard Pittman, housing services coordinator for the nonprofit ByDesign Financial Solutions, formerly known as the Consumer Credit Counseling Agency of Los Angeles. The rest have been hit with adjustable-rate hikes they can't handle. "In some cases, we're talking about a 20% to 40% increase in their payments."

Southern California is awash in ARMs and sub-prime loans, which default more often than fixed-rate mortgages, said Rick Sharga, vice president of marketing for RealtyTrac Inc., an Irvine-based company that monitors foreclosure activity.

Foreclosure rates are no longer at the historic lows posted during the housing boom, when overextended owners could more easily sell, Sharga said.

On the rise

In Los Angeles County, foreclosure activity -- homes entering some stage of the process -- rose 5% from July to August, to 2,107 properties. It was the third hike in three months, according to RealtyTrac.

In Orange County, the rate rose 9%, to 606 properties, in the same period, while Riverside and San Bernardino counties posted a steep 52% increase, to 2,717 properties. These numbers are expected to rise, he added.

As the numbers grow, so too do the bailout offers.

"When my house was in default, I got letters -- at least eight a day," Latji said. "They were telling me they could save my house, they could refinance me so that I could have a lower payment, so I could stay where I was."

Twice she paid a $350 appraisal fee. "They made promises, but nobody could help me."

Deluged with pitches from foreclosure specialists -- lenders, investors, real estate agents, counselors and consultants -- desperate homeowners face a daunting challenge: how to tell the legitimate businesses from the predators who charge excessive fees, fail to deliver services, pressure them into signing away the property for little or nothing or offer lowball prices that siphon off years of equity.

"Foreclosures are public documents, so they generate all kinds of people coming to your door looking to help you," said Benjamin Diehl, a deputy attorney general in the consumer protection section of the California attorney general's office.

Diehl said he has seen an increasing number of complaints about foreclosure consultants who charged upfront fees, which is illegal, or didn't deliver promised services.

Before signing anything, he recommended checking with the Better Business Bureau for any complaints against the company and rejecting companies that want to charge for steps homeowners can take themselves, such as negotiating with the lender to reduce, postpone or suspend payments, stop late fees or allow enough time for the house to be sold.

"It's not always best to go with the flier stuck on your door," he said. "Some of them are honest. Some of them aren't."

One flier led Bianca Garcia of Palmdale to act when she and her husband were four months behind on their $1,600 first mortgage and their $600 second. Garcia, an office worker, had lost income after having surgery. She and her husband, who works in construction, had received a notice of default, the first official warning from the bank that they could lose the four-bedroom Mediterranean-style house they had bought for $175,000 in 2003.

Garcia called The TerraCotta Group LLC -- a real estate and mortgage investment firm based in Manhattan Beach and founded by Tingting Zhang -- which works with delinquent borrowers to save their homes. The company offers sub-prime loans and mortgages from small companies and private investors to high-risk borrowers who have built equity but cannot qualify with a bank.

Because of their poor credit, these borrowers must pay higher interest rates and attend mandatory credit counseling, but the firm structures deals that give them time to recover.

In the case of Garcia and her husband, the company devised a plan for an investor to buy the home and sell it back to the couple a year later.

"They took my second and my mortgage and they paid it off," Garcia said. "We were able to get $30,000 out in cash, and they did that within 30 days, even with my horrible credit."

The firm paid out $250,000, plus nearly $10,000 in closing costs and also subsidized the couple's monthly payments by $600 for a year. The house was put in a land trust with the deed in the name of an investor who jointly owned the property with the couple.

They are currently in escrow to buy back the house for $297,000, which includes a 10% return for the investor. Because the required counseling improved their credit, a conventional lender gave them a 6.9% fixed-rate, 30-year mortgage.